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Lok Sabha passes Taxation Laws (Amendment) Bill, 2019

The Taxation Laws (Amendment) Bill, 2019 will provide domestic companies with an option to pay tax at the rate of 22 percent.

Dec 3, 2019 11:55 IST
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The Taxation Laws (Amendment) Bill, 2019, which seeks to amend the Income Tax Act 1961 was passed by the Lok Sabha on December 2, 2019. 

The bill will replace an ordinance promulgated by the President in September 2019 to reduce corporate tax rates. The bill will amend both the Income Tax Act 1961 and the Finance (No 2) Act 2019

The bill seeks to attract more investment in the manufacturing sector by bringing down corporate tax rates to 22 percent without incentives and 15 percent for new manufacturing entities

Taxation Laws (Amendment) Bill, 2019: Key Features

The Taxation Laws (Amendment) Bill, 2019 will provide the domestic companies with an option to pay tax at the rate of 22 percent, as long as they do not claim certain deductions under the Income Tax Act. Presently, the domestic companies with an annual turnover of up to Rs 400 crore pay income tax at the rate of 25 percent and other domestic companies have to pay tax at the rate of 30 percent.

The Bill also provides the new domestic manufacturing companies with an option to pay income tax at the rate of 15 percent, as long as they do not claim certain deductions. The new domestic manufacturing companies must be set up and registered after September 30, 2019 and start manufacturing before April 1, 2023.

The domestic companies have the right to opt for the new reduced tax rates in the fiscal year 2019-20 or any other fiscal year in the future. Once the company makes the choice of the tax rate, it will apply for all subsequent years.

The provisions regarding payment of Minimum Alternate Tax (MAT) will not be applicable to companies opting for the new tax rates. The provisions regarding MAT credit will also not apply to the domestic companies opting for the new rates.

MAT is the minimum tax, which a company is required to pay, in case its normal tax liability falls below a certain limit after claiming deductions. 

The tax ordinance reduced the rate of MAT for companies not opting for the new tax rates from 18.5 percent to 15 percent with effect from the fiscal year 2019-20. The new taxation bill amends the provision and makes the reduced rate of MAT effective from the fiscal year 2020-21.

Background

The ordinance proposing a reduction of corporate tax rates was promulgated by the President on September 20, 2019. The ordinance proposed lower tax rate options for domestic companies to promote growth and investment and attract fresh investment in the domestic manufacturing sector.

The Taxation Laws (Amendment) Bill, 2019 was introduced in the Lok Sabha on November 25, 2019 to replace the Ordinance.

The Union Government in September 2019 reduced corporate tax rates up to 10 percentage points to pull up India’s economy. The reduction was the biggest in the last 28 years.  

The base corporate tax of the domestic companies was reduced to 22 percent from 30 percent and to 15 percent from 25 percent for the new domestic manufacturing firms, which were established after October 1, 2019 and started operations before March 31, 2023.

The companies opting for lower tax rates will, however, not be entitled to claim any rebate or deductions.

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